Bayesian Implementation and Rent Extraction in a Multi-Dimensional Procurement Problem

Fabian Herweg () and Klaus Schmidt ()

No 133, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We consider a multi-dimensional procurement problem in which sellers have private information about their costs and about a possible design flaw. The information about the design flaw is necessarily correlated. We solve for the optimal Bayesian procurement mechanism that implements the efficient allocation under the constraint that sellers are protected by limited liability. We show that the rents obtained from reporting costs truthfully can be used to reduce the rents sellers must get for reporting the flaw. We compare the optimal Bayesian mechanism to the optimal ex post incentive compatible mechanism that is informationally less demanding.

Keywords: auctions; correlated types; inefficient renegotiation; multidimensional screening; procurement (search for similar items in EconPapers)
JEL-codes: D44 D47 D82 H57 (search for similar items in EconPapers)
Date: 2018-12-20
New Economics Papers: this item is included in nep-des, nep-mic and nep-reg
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Related works:
Journal Article: Bayesian implementation and rent extraction in a multi-dimensional procurement problem (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:133

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